What Is GAP Insurance and Do You Need It?

Key takeaways

GAP is an optional product intended to cover the difference between what you owe on your loan and what your insurer pays after a total loss or theft.
Generally you cannot be required to buy it.
If you finance it, it adds to your loan and to the interest you pay.
You have the right to cancel an optional add-on and reduce your costs.

What GAP does

GAP stands for guaranteed asset protection. According to the Consumer Financial Protection Bureau (CFPB), it is an optional product intended to cover the difference between what you owe on your auto loan and what the insurance company pays if your car is stolen or totaled.

Standard auto insurance only pays up to the value of your vehicle. If your loan balance is higher than that value, GAP is meant to cover the shortfall.

Where you can get it

Dealers often offer it as an add-on when you buy or lease a car, and the cost is usually rolled into the loan.
Your own auto insurance company may offer a GAP policy, and some lenders offer one too.

Before you buy

It is optional in most situations. The CFPB says that generally you cannot be required to buy GAP insurance.
If you finance it, it adds to your loan amount, which increases the total interest you pay.
These products often have eligibility restrictions and may not provide value, depending on your circumstances. Read the contract.
If a seller says it is required, ask them to show you where your sales contract says so.
If you buy an optional add-on and change your mind, you have the right to cancel it and reduce your costs.

How to tell whether a gap exists

GAP is designed for the case where you owe more than the car is worth. Compare your loan balance with the car's current value to see whether a gap exists, and revisit the question as you pay the loan down.

General information only. It is not insurance, legal or financial advice. Rules differ by state and change over time, so confirm details with your state insurance department, your insurer and your policy.

Common mistakes

Assuming GAP is required.
Not reading the contract to see what it covers and what it leaves out.
Rolling it into the loan without noticing the extra interest.

Questions

Does GAP pay my deductible?

It depends on the contract. Read the terms to see what the product covers and what it leaves out.

Is GAP the same as full coverage?

No. GAP is a separate product that covers a loan shortfall after a total loss or theft. Collision and comprehensive coverage pay for your car up to its actual cash value, minus your deductible.

Can I cancel GAP?

The CFPB says you have the right to cancel optional add-on products and reduce your costs. Ask the seller how a refund works.

Sources

CFPB: What is guaranteed asset protection (GAP) insurance?consumerfinance.gov
CFPB: Am I required to purchase an extended warranty, GAP insurance, or credit insurance?consumerfinance.gov

Informational only. Rules and policy terms change and differ by state and insurer. Confirm details with your policy, your insurer or your state insurance department.

Keep exploring

Rules differ by state: see car insurance requirements by state.
Unfamiliar words? Check the insurance glossary.
Browse every article by topic.
See how we check what we publish on How we verify.

Collision vs. comprehensive coverageBoth coverages protect your own car, but they respond to different events. Your deductible decides how much you pay first.

Car · 5 min

Replacement cost vs. actual cash valueThe valuation method in your policy changes how much a claim pays. It is one of the most important lines to understand before you need it.

Home · 4 min

What affects your car insurance rateYour rate comes from your own details and the insurer's rating rules. Here are the factors insurers commonly weigh and sensible ways to compare prices.